From the January 2000 SURVEY OF CURRENT
BUSINESS

Annual Input-Output Accounts of the U.S. Economy, 1996

By Sumiye O. Okubo, Ann M. Lawson, and Mark A. Planting

In december 1999, the Bureau of Economic Analysis (BEA) released the 1996 annual input-output (I-O) accounts for the U.S. economy.
These accounts are based on an update of the 1992 benchmark I-O accounts, and
they reflect the recent comprehensive revision of the national income and
product accounts (NIPA's)./1/ The I-O accounts were
prepared using 1996 estimates of
industry and commodity output and the 1996 estimates of gross domestic product
(GDP) from the NIPA revision.

This presentation of the 1996 annual I-O accounts marks the resumption of the
regular preparation of annual I-O accounts and the refocusing of the resources
that had been used to speed up the preparation of the 1992 benchmark I-O
accounts. The last set of annual accounts, which presented estimates for
1987, was published in the April 1992 issue of the SURVEY OF CURRENT
BUSINESS. The annual I-O accounts for 1997 are scheduled for release in the
fall of 2000.

The annual I-O accounts provide estimates of the domestic production, the
export and import of commodities (goods and services), the use of commodities
by each industry, the commodity composition of GDP, and the industry
distribution of value added. The annual I-O accounts are used in a variety of
analytical and statistical contexts, including studies of interindustry
relationships within the economy and as the basis for developing satellite
accounts on particular aspects of the economy.

This article is presented in two parts. The first part describes the 1996
annual I-O tables, explains how the accounts can be used, and identifies some
of the highlights. The second part describes the methodology that was used to
prepare the 1996 annual I-O accounts.

1996 Annual I-O Accounts

The annual I-O tables

The 1996 annual I-O estimates are presented in five tables, beginning on page
48. These tables consist of a make table, a use table, a direct requirements
table, and two total requirements tables. In addition, alternative make and use tables that are based on a classification of industries that more closely
relates to the 1987 Standard Industrial Classification system have been
prepared (see the box "Alternative Make and Use Tables" on page 43
and the box "Data Availability" on page 46).

The presentation of the annual I-O tables is generally the same as that of
the benchmark I-O tables, but the information is less detailed. The
annual I-O tables present summary estimates for 97 industries, while the
benchmark I-O tables present more detailed estimates for 498 industries.
The annual use and total direct requirements tables present estimates of
total value added by industry, while the corresponding benchmark tables
present detailed estimates of value added for compensation of employees,
indirect business tax and other nontax liability, and other value added.
In addition, the presentation of the annual I-O tables has been changed to
incorporate the definitional and classificational changes, such as the change
in the treatment of business and government expenditures for software, that
were introduced in the 1999 comprehensive revision of the NIPA's./2/

The make table shows the commodities that are produced by each industry
(table 1), and the use table shows the inputs to industry production and the
commodities that are consumed by final users (table 2). As discussed in the
section on methodology, the estimates of commodity output and industry output
in the make and use tables, and the estimates of final uses in the use table,
are based on new source data. Most of the other estimates are based on
updated relationships from the 1992 benchmark I-O accounts./3/

The three requirements tables are derived from the make and the use tables.
The direct requirements table shows the amount of a commodity that is required
by an industry to produce a dollar of the industry's output (table 3). The
two total requirements tables show the production that is required, directly
and indirectly, from each commodity (table 4) and from each industry (table 5)
to deliver a dollar of a commodity to final users.

The uses of the annual I-O accounts

The annual I-O accounts are an important tool for economic analysis because
they show the interdependence among the producers and the consumers in the
U.S. economy. The accounts can be used to estimate the direct and indirect
effects of changes in GDP expenditures for final uses on industries and commodities. For example, the accounts can be used to estimate the effects of
a change in Federal Government consumption and investment on industry and commodity output, and, supplemented with additional information, they can be
used to estimate the effects of an increase in U.S. exports on employment.

The I-O accounts are used in several ways to prepare other economic
statistics. For example, in the 1999 comprehensive NIPA revision, estimates
from the 1996 annual I-O tables were used to estimate the 1996 commodity
distribution for most of the components of personal consumption expenditures
(PCE) for goods,/4/ and estimates from the 1992 benchmark
I-O accounts were used to prepare the estimates of final expenditures./5/ Detailed
information from the 1996 annual I-O accounts will be used to update the 1992
transportation satellite accounts, the 1992 travel and tourism satellite
accounts, and the regional I-O multiplier estimates./6/

Highlights from the 1996 annual I-O accounts

These highlights are drawn from several analytical tables that are based on
the 1987 and 1992 benchmark I-O accounts and the 1996 annual I-O accounts.
Estimates of changes in current-dollar commodity output, exports, imports, and domestic supply provide insight on the changing structure of the U.S. economy and particularly on the increasing role of trade in recent
years./7/ The growing
importance of exports and imports is a factor for both rapidly growing,
high-tech commoditiessuch as computer and office equipment and audio,
video, and communications equipmentand some slower growing or declining
basic-consumer commoditiessuch as apparel and footwear, leather, and
leather products (table A).

As the average annual growth in output for all commodities increased from
5.8 percent in 198792 to 6.8 percent in 199296, the commodity composition
of growth changed significantly (table B). Of the 10 fastest growing
commodities in 199296, only computer and data processing services was also
among the top 10 in 198792. In 199296, five of the other fastest growing
commodities are also considered high-tech commoditieselectronic components and accessories; radio and TV broadcasting; special industry machinery and equipment; audio, video, and communication equipment; and computer and office
equipment.

For four of the fast growing commoditiescomputer and office equipment;
special industry machinery and equipment; electronic components and accessories; and audio, video, and communication equipmentincreases in
exports accounted for over one-fourth of the increase in domestically produced
output in 199296. For all commodities, exports accounted for 6.6 percent of
the increase in domestically produced output.

Of the 10 slowest growing commodities in 199296, tobacco products and water
transportation were among the faster growing commodities in 198792 (table C). Declines in output of two
commoditiesordnance and accessories and aircraft and partspartly
reflected declines in national defense spending. In addition, a drop in
exports accounted for 39 percent of the decline in aircraft and parts and for
6 percent of the decline in ordnance and accessories. In coal mining, a
decline in output primarily reflected a decline in coal prices, and it partly
reflected slower growth in electric service utilities, which are major users
of coal.

Of the 10 commodities with the fastest growth in domestic supply in 199296,
only electronic components and accessories and "computer and data processing
services, including own-account software," were also in the top 10 in 198792
(table D). Four of the top 10 commodities are durable goodsfarm,
construction, and mining machinery; materials handling machinery and equipment; metalworking machinery and equipment; and truck and bus bodies,
trailers, and motor vehicles parts. These commodities, which are produced by
"heavy" industries, grew relatively slowly in 198792, but they rebounded
in 199296 as the result of the overall growth in the economy after the
199091 cyclical contraction.

In 199296, increases in imports accounted for 62 percent of the increase in
the domestic supply of computer and office equipment, for 34 percent of the
increase in the domestic supply of electronic components and accessories, and for 36 percent of the increase in the domestic supply of metalworking
machinery and equipment. For all commodities, imports accounted for 8.5
percent of the increase in the domestic supply.

Of the 10 slowest growing commodities in domestic supply in 199296, tobacco
products, scientific and controlling instruments, ophthalmic and photographic
equipment, aircraft and parts, and water transportation were among the
faster growing in 198792 (table E).

Changes in final uses PCE, private investment, and government consumption
expenditures and gross investmentalso affected the relative rates of growth
in domestic supply. In 199296, reductions in national defense spending
contributed directly to the declines in the domestic supply of ordnance and accessories, aircraft and parts, and scientific and controlling instruments.
The slow growth in scientific and controlling instruments also reflected the
decline in aircraft and parts, because it is an important intermediate input
in the production of aircraft. The step-up in private investment contributed
directly to the strong increases in "computer and data processing services,
including own-account software"; computer and office equipment; farm,
construction, and mining machinery; special industry machinery and equipment;
materials handling machinery and equipment; and metal working machinery and equipment.

Methodology for the 1996 Annual I-O Accounts

The 1996 annual I-O accounts are based on both the 1992 benchmark I-O
accounts and on the most recently revised NIPA's. The 1996 estimates
incorporated the definitional, classificational, and statistical changes that
were introduced in the 1999 comprehensive revision of the NIPA's, including a
definitional change in the treatment of business and government expenditures
for software. Business and government purchases of software (except software
embedded in other equipment) that were previously treated as intermediate
purchases by business or as government consumption expenditures are now
treated as investment. The coststhe intermediate inputs and the
value-added inputsthat are associated with the production of own-account
software are also treated as investment./8/ In the I-O accounts, these costs are added to the gross output of the
computer services industry (industry 73A)./9/ These and other changes were incorporated
into the 1996 annual I-O estimates to make them more consistent
with the NIPA's.

The methodology used to prepare the 1996 annual estimates is similar to that
used for the 1992 benchmark estimates, but the annual estimates are based on
less comprehensive and less detailed source data. For the annual estimates
for which data were unavailable, the relationships from the 1992 benchmark
accounts were extrapolated to 1996.

The annual I-O estimates are prepared in five steps: (1) The output total for
each industry and commodity is calculated; (2) the commodity composition of
intermediate inputs for each industry is estimated; (3) the domestic supply of
each commodity is estimated; (4) the commodity compositions of the GDP
expenditure components for PCE, gross private fixed investment, and government
consumption and investment expenditures are derived; and (5) the table is
balanced. In the rest of this section, for each of these steps, the
procedures and source data used to prepare the 1996 annual estimates are
compared with those used to prepare the 1992 benchmark estimates.

Industry and commodity output totals

For most industries, source data are available to estimate 1996 industry
output at the same level of detail as that used for the 1992 benchmark
accounts. For manufacturing, trade, and most service industries, the source
data for the 1996 estimates are based on sample surveys, whereas the source
data for the benchmark estimates were based on more complete and detailed data
from the quinquennial economic censuses. For agriculture, insurance, and government enterprises and for major parts of transportation, communications,
utilities, finance, and real estate, the source data used for the 1996
estimates are comparable to those used for the benchmark estimates. For the
industries for which annual source data at the benchmark level of detail are
not available, aggregated industry source data are used to extrapolate the
industry output estimates. Table F summarizes by major industry division
the number of I-O industries and the number of industry extrapolators
available for the 1996 estimates; table G shows the data sources for these
estimates.

For most commodities, source data are available to estimate 1996 commodity
output at the same level of detail as that used for the 1992 benchmark
accounts, and the data used for these estimates are from the same sources as
those used to estimate industry output. For commodities without a commodity
extrapolator, the commodity output is estimated using the industry output
extrapolator and the 1992 benchmark commodity composition of industry output.
This procedure is based on the assumption that the proportions of commodities
produced by industries were constant from 1992 to 1996.

Commodity composition of intermediate inputs

The 1996 estimates of the composition of intermediate inputs used by each
industry are based on 1992 benchmark relationships, with adjustments for
changes in relative prices and other factors. First, each industry's 1996
output, valued in 1992 dollars, is estimated using an industry price index
that is calculated by weighting commodity price indexes with the commodity
composition of each industry's output. Generally, the number of price indexes
available for commodities is fewer than the number of commodities; for
commodities for which a price index is unavailable, an aggregate price index
is applied to multiple commodities (tables Fand G). /10/

Second, each industry's 1996 output, valued in 1992 dollars, is multiplied by
that industry's 1992 direct requirements per dollar of output to obtain 1996
intermediate inputs valued in 1992 dollars. This procedure is based on the
assumption that the 1996 composition of an industry's inputs per dollar of its
output valued in 1992 constant dollars is unchanged from that in the 1992
benchmark accounts. The results are then reflated to current-dollar values
using commodity price indexes. For the benchmark estimates, source data for
the commodity composition of intermediate inputs for each industry were
available, primarily from the quinquennial economic censuses.

Finally, commodity taxes, transportation costs, and trade margins for each
input are estimated. Commodity taxes are added to raise inputs in basic
prices to producers' prices. Transportation costs and trade margins are
estimated to provide the producer-value inputs of these commodities by
industries, using rates based on 1996 commodity output and 1992 relationships.

Domestic supply

Domestic supplythe total value of goods and services available for
consumption as intermediate inputs by industries or as PCE, gross private
fixed investment, and government consumption and investment expendituresis
calculated as domestic commodity output plus imports less exports less the
change in private inventories. Exports and imports in both the annual and
benchmark I-O accounts are based on Census Bureau foreign trade statistics and
the BEA international transactions accounts./11/ The 1996
change in private
inventories by industry are from the NIPA's, and the commodity composition of
inventories held by industries are based on 1992 benchmark relationships.

Commodity composition of final uses excluding trade and change in private inventories

The 1996 annual estimates of the major expenditure components of final uses
for PCE, gross private fixed investment, and government consumption and investment are based on the procedures used to estimate GDP in the
NIPA's./12/

The major differences between the source data and the estimating procedures
used for the 1992 benchmark estimates and those used for the 1996 NIPA
estimates by major GDP expenditure component are as follows:

PCE goodsThe 1996 estimates are extrapolated from the 1992 benchmark estimates using the retail-control method. For the 1992 benchmark
estimates, the commodity-flow method was used./13/

PCE servicesThe 1996 estimates are extrapolated from the 1992
benchmark estimates using measures of gross output that are similar to
those used for the 1996 estimates of industry and commodity output.

Private investment in equipment and softwareThe 1996 estimates
are extrapolated from the 1992 benchmark estimates using an abbreviated
commodity-flow method./14/

The initial estimates of the 1996 commodity composition of PCE and gross
private fixed investment are based on the commodity-flow method. The initial
estimates for government expenditures are extrapolated using 1992 benchmark
relationships.

Balancing the table

For each commodity, the initial estimates of the commodity distribution of
domestic supply to all intermediate industries, PCE, gross private fixed
investment, and government consumption and investment expenditures are
adjusted so that these shares of domestic supply are similar to the shares in
the 1992 I-O benchmark accounts. These estimates are then further adjusted to
reflect the 1996 estimates of final expenditure categories from the 1999 NIPA
comprehensive revision. Value added by industry is estimated by subtracting
the sum of intermediate inputs by industry from industry output.

5. Leon
W. Taub and Robert P. Parker, "Preview of Revised
NIPA Estimates for 1992 From the 1992 I-O Accounts," SURVEY 77 (December
1997): 1113. The differences between the 1992 benchmark I-O accounts and the revised 1992 estimates from the 1999 comprehensive revision of the NIPA's
largely reflect the definitional change in the treatment of software in the
NIPA's and statistical changes, including the use of economic census data on
inventories for construction and for mineral industries and the use of newly
available source data, primarily final tabulations of State and local
government expenditures from the 1992 Census of Governments.

9. In the I-O accounts, these
costs are "redefined"subtracted from the inputs of businesses that
produce own-account software and from government consumption expenditures and added to the inputs of the computer services industry. Own-account
construction is treated similarly.

10. Slightly
different estimates of intermediate consumption by industry results would have
been obtained if the 1996 output and the resulting real intermediate
consumption estimates had been reflated using chain-type price indexes like
those used for most other BEA estimates. However, any such difference would
not affect the allocation between final uses and intermediate inputs, because
the allocations for final uses is based on the 1996 current-dollar NIPA
estimates and the actual 1996 current-dollar commodity output.

13. For a description of the retail-control method,
see U.S. Department of Commerce, Bureau of Economic Analysis, Personal
Consumption Expenditures, Methodology Paper No. 6 (Washington, DC: U.S.
Government Printing Office, 1990): 41; for a description of the commodity-flow
method, see Lawson, 39.